Tough times for small biz in NB

I have been researching lately a few trends among SMEs in Canada and actually was quite shocked to uncover a few facts which will undoubtedly not make in into the public discourse during the election in New Brunswick but which probably should.

First, as the chart below shows (sorry for the small size), New Brunswick’s small business segment has taken a thumping since 2000. The number of businesses with 1-9 employees is down 8%, the same decline for businesses with 10-19 employees and a 3% decline in businesses with 20-49 employees. Only PEI has faired worse.

This is an important statistic for three reasons:

1) The NB government cut off a variety of support programs for small business when the Tories came into power and made some cuts to the small business tax rate. The Mike Harrisian theory says that if you want small business to grow, cut their tax and reduce red tape.

Nope. Not in New Brunswick. Note to Tories: If you want the small biz vote, you had better tweak your approach.

2. Another point I have made on numerous occassions. Small businesses don’t pay any real corporate tax and never have. The entire tax cuts to small business were estimated to only take out a few million dollars from the tax coffers of the province. I think at the time it worked out to about the cost of a cup of coffee per day per small business. Therefore, cutting their corporate tax rate was another PR effort.

3) Thirdly, I have a theory that small business growth is tied to overall economic growth. I base this on the fact that the small business retention and growth rate in Ontario has always been far above New Brunswick’s even though they have had much fewer economic supports for small business. My logic here is simple, 95% of all small businesses exist to service their local market (restaurants, hair dressers, consultants, corner stores, franchises, etc., etc, etc.) and their growth is dependent on the overall growth of the community rather than tweaking a tax rate. For example, bringing 7,000 call centre jobs into Moncton (like it or not) brought it something like $350 million in new payroll spending – which is enough business for hundreds of small businesses.

However, my logic here is strained as the government of New Brunswick spends $2 billion more per year in New Brunswick now than in 1999 and the small business sector still shrunk.

I’ll leave it to economists to work this one out.

But I can’t leave you without another interesting small biz stat that I came across this week. I have been looking at Statistics Canada’s income data which comes from income tax forms.

In 1999, there were 44,140 people that claimed ‘self-employment’ income on their tax forms.

In 2003, that number had dropped to 42,180 – a drop of 4.5%. In Canada as a whole the number of people reporting self-employment income increased by 1%.

Average self-employment income reported by NBers increased by 7% from 1999-2003 – one third the increase from regular employment income. Across Canada, the average self-employment income increased by over double the NB rate.

What the decline in small businesses and the tepid growth in average self-employment income (below inflation) tell us is that it’s becoming a lot harder to be a small business in New Brunswick in the past five years.

But, the election messaging on this will be simple.

Lowest small busines tax rate in Canada! Red tape reduction! Wow!

Things are always the same as what you read in the papers, folks.